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How to make a million


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A million pounds may not be worth what it was but its still an impressive financial achievement to be worth a million. How do you do it? Win a million, inherit a million, marry a million or earn a million Moneyextra explains how.

How can I win a million?

Almost half a million of us are members of the million dollar club according to a Merrill Lynch / Cap Gemini 11th World Wealth Report published in June 2007. The members of this exclusive club have cash and investments worth $1 million (£500,000) - a tally which does not include the value of their home. In fact, the number of 'rich Brits' grew 8.1% to 485,580 in 2006 and those with more than $30 million lying around, the ultra-high net worth individuals, rose by 10% to 3,750. The question is: how can we join the millionaires' club?

You may think your best bet resides with an appearance on a TV programme hosted by a middle-aged blonde ex-DJ from Capital Radio. But if the bright lights of 'Who wants to be a millionaire' don't inspire you or your general knowledge is not good enough or your fingers just aren't fast enough, you have other options.

These include the National Lottery (with a 14 million to one chance) and Premium Bonds (68 million to one chance but you never lose your stake). You could even just take a £1 coin to a casino. Put your one-pound chip on your favourite number on the roulette table. When the number comes up, do the same again ("let it ride") three more times in a row and you'll be in the millionaire bracket, pocketing a cool £1.5 million. Don't hold your breath while waiting for any of these things to happen.

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How do I inherit a million?

Inheriting your wealth works and it's perfectly legal. However, it also depends on you having rich relatives so getting your wealth this way tends to be a bit out of your control, although you can help make sure that your relatives do proper inheritance tax planning.

If your great-uncle is loaded then you probably need to make sure he knows that you think he really is great, even if he is actually a miserable old so-and-so. As you will quickly realise, gold digging is deeply undignified.

Alternatively, keep an eye on the obits - going through the 'Wills and Bequests' section of, for example, The Daily Telegraph or The Times could be a start - you then hire a lawyer (on a no-win no-fee basis) to try and establish a bloodline to the donor and claim your share!

Stocking up on life insurance to cover your supposed loved one and then taking out a 'contract' on them may be a good script for a Hollywood thriller [Double Indemnity] but is unlikely to work - it didn't in the movie.

An up-to-date will is your best defence against inheritance tax.

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How do I marry a million?

It is said to be every man's dream to marry a sports-car driving brewery heiress. Sadly there are not enough of them to go round. In fact it is very, very difficult for men to marry money and not much easier for women. The vast majority of us, those who are, let's face it, not drop-dead, knee-tremblingly gorgeous are not likely to be able to follow this route. The remainder might like to start by making regular purchases of a particular kind of gossipy glossy magazines in order to compile a list of likely targets, sorry potential mates.

When Archibald Alexander Leach, better known as Cary Grant, tied the knot with Woolworth's heiress Barbara Hutton in July 1942 wags rather unkindly referred to the couple as "cash and Cary". In modern day terms the woman was worth several hundred million dollars (she'd actually inherited $60 million). For this kind of money you can afford to maintain a dignified silence (I find tearing up a £50 note into small pieces and scattering it in someone's face a fast way to stop them laughing).

Wealthy women tend to be thinner (that makes sense on its own) and thinner on the ground than wealthy men. If you are looking for a beautiful, wealthy young woman you are probably going to have to head off to Hollywood and hang around outside the studios.

Those looking for young men with money don't have so far to travel. The nearest Premiership football ground is likely to be far enough. The bonus here is that not only will your prospective partner have money and a willingness to spend it on you but he is likely to be fit as well. As for emotional and mental maturity, well you can't have everything, can you?

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How do I get a house worth a million?

This has been the subject of numerous television programmes featuring z-list celebrities - the kind of people for whom high-end property magazines may count as a kind of pornography. You can, if you are prepared to take the risks and play the property market, trade up furiously, taking your profits as you go until you reach the house worth a million.

Of course, such a plan only works in a rising market. Frankly, if the market is rising, you could just stay put. Take the average house, worth £209,454 in April 2007, according to the Department for Communities and Local Government (Source: Communities and Local Government Statistical Release 2007/0107 of 11/06/2007). Assume house price inflation of 20% a year and your average house would be worth more than a million in less than 10 years!

Is 20% inflation in house prices each year for 10 years a realistic prospect? Probably not but do bear in mind that average house prices have almost doubled in the last five years, rising from £109,725 in June 2002 (Source: Halifax House Price Index).

Moving home? Then maybe you should be moving your mortgage too! See how much money you could be saving right now with a better mortgage.

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How can I earn a million?

If you are on median earnings, £23,600 in the year to April 2006 (source: National Statistics), then all you need to do to earn a million is work solidly for just under 43 years. You probably won't notice that a million pounds will have passed through your hands but it will have done.

There's an old saying, "Build a better mousetrap and the world will beat a path to your door!" It is not entirely true. If you build a better mouse trap what is likely to happen is that existing mouse trap builders will, first, do their damnedest to make sure your invention never sees the light of day; if it does they will rubbish it and if you start to make serious inroads into their market they will rip-off your design and claim it as their own.

Does that sound a little jaundiced? Maybe, but all you have to do to realise it is painfully accurate is read the autobiographies of inventors like James Dyson who created the ball-barrow and the eponymous vacuum cleaner ( Against the Odds: An Autobiography by James Dyson, published 1998) and Trevor Bayliss who designed the wind-up radio ( Clock This: My Life as an Inventor by Trevor Bayliss, published 1999).

So, while finding the killer invention and registering key patents is a potential money-maker, you might find it easier to climb the greasy poll to the top inside an organisation rather than outside it. Set your sights on becoming the Chief Executive of a company turning over more than £1 billion a year. According to the Executive Directors Total Remuneration Survey 2006 by executive pay consultancy, Independent Remuneration Solutions (IRS) and Manifest, median total CEO remuneration in such companies in 2005 was £2.1m (including salary, benefits, bonus and options and share schemes), having risen by 9% - faster than average earnings and by three times the rate of inflation.

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What do I need to invest to make a million?

You could have made your million investing in the stock market had you chosen the right go-go stocks during the internet bubble of the late 1990s. However, you would have had to get your timing absolutely spot-on, otherwise very quickly you would also have found that your investment would be gone-gone!

You may prefer to try your hand at the derivatives markets but if you are considering this option or future, consider the fate of Barings Bank at the hands of 'rogue trader' Nick Leeson. These markets are best avoided unless you really know what you're doing.

All of which is not to say that you cannot make money in the stock market. Assume a nominal annual return of 7% and you could rack a million in 25 years. To do so would cost you a monthly investment of £1,236.

We've used 7% as a nominal average annual return forecast based on adding together 2% inflation, 2.25% trend growth for Gross Domestic Product (UK economic turnover) and, say, around 3.75% dividend yield. That tots up to 8%, subtract 1% for annual charges and voila!

If the stock market's vagaries make you nervous you could always aim for the bounties of compound interest returns on a savings account. If such an account is more your risk level, an assumed net return of 4.5% a year would deliver a million to you in 25 years provided you could afford to put away £1,808 a month.

Moneyextra's Investment Centre contains all you need to know about investing in the stock market.

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Can I create a pension worth a million?

Take out a stakeholder pension with the basic £20 a month contribution and, at an assumed rate of return of 7%, you will have accumulated a million in 81 years and five months - probably just in time to give you a decent send-off!

A more realistic gross monthly pension contribution of £300 with the same assumed return would create a fund worth a million pounds in an equally more realistic 43 years three months - not remarkably dissimilar to the now expected post-graduation working lifetime. Remember that, under current legislation, a gross pension contribution of £300 would cost a basic rate taxpayer £234 and a higher rate taxpayer just £180.

Should you be taking advantage of a stakeholder pension? Find out more about your pension options.

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Could inflation make me a millionaire?

A million pounds is not worth what it used to be. That is the rich man's lament but it is not all that far from the truth. A million pounds in 2005 had the same spending power as £43,579 pounds in 1950.

Research by luxury events organiser Carbon Black (Source: Daily Mail 27/04/07) suggests that you would actually need nearer £6 million than £1 million to live the millionaire lifestyle.

Indeed millionaires are now so 'common' that the coffee table magazine for the aspirational rich in America had to change its name in 2000 from Millionaire to Opulence to retain some sense of exclusivity.

A million is a lot of money but it won't necessarily give you a lot of money. Invest it in such a way as to ensure that your capital is at no risk at all and you will be lucky to generate an income of much more than £50,000 a year. Yes, that is double the national average wage but it is still hardly "Lifestyles of the Rich and Famous" territory!

Assuming inflation steady at the Bank of England's target of 2%, the spending power of one million pounds in today's terms would be worth £817,072.81 in 10 years time, having lost almost a fifth of its value, and £667,607.97 in 20 years time, down by nearly a third.

If you really wanted to be a millionaire in a hurry then a summer holiday in Turkey in 2004 would have done the trick. To become a Turkish Lira millionaire would have cost you a mere 37.5p (TRL2,667,184.65/£1 on 10/08/04)! However, on January 1st, 2005, the Turkish Lira was replaced with a new currency knocking six noughts off the old one. Now, your best bet for a holiday destination with the millionaire touch is Vietnam where you can be a millionaire in Dongs for the princely sum of £30.47. (VND32818.3/£1 on 04/07/07).

Do you need unbiased independent financial advice? Why not give us a call?

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29 August 2007 © Moneyextra.com

 

Our senior editor Robin Amlôt recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.